Dissimilar FTA Strategies of Japan and the U.S.: An analysis of the product-specific rules of origin

This paper investigates the trade restrictiveness of product-specific rules of origin (PSRs) in the comprehensive sets of free trade agreements (FTAs) for Japan and the U.S, focusing on their similarities and dissimilarities. The most distinctive dissimilarities are the major PSR types and the variation in PSR types among FTAs. Japan’s FTAs use the selective type (“change in tariff classification (CTC) or regional value content (RVC)”) most intensively. In contrast, a few U.S. FTAs use RVC and others use CTC most intensively, and the distribution of simplified PSR types appears to be almost the same among FTAs in each group. The detailed PSR types, however, are likely to be more heterogeneous and complicated in U.S. FTAs than those in Japan’s FTAs. Such dissimilar features are more salient in machinery sectors with dense global value chains (GVCs)/international production networks (IPNs). The quantitative estimates suggest that the selective types utilized by Japan for most machinery products are much less trade-restrictive, while certain complicated types adopted by the U.S. for many machinery products are substantially trade-restrictive. Our detailed investigation revealed the two countries’ contrasting strategies, namely, Japan appears to utilize FTAs with less restrictive PSRs to enhance GVCs/IPNs, while the U.S. tends to make PSRs more restrictive and complicated in detail as a sort of disguised protection tool.